Innovative Marketing, Inc. and several of its high level executives recently got some bad news from a federal appellate court. The court upheld a trial court's order awarding damages in the amount of
$163,167,539.95 based on the company's deceptive advertising practices. The appellate court rejected the argument that the Federal Trade Commission - which had brought the suit- lac ked statutory authority to recover money damages.
It appears Innovative Marketing may have been a little too “innovative.” According to the FTC, Innovative operated" a massive. Internet-based scheme that trick[ed] consumers into purchasing computer security software," referred to as "scareware." The advertisements would advise consumers that a scan of their computers had detected a variety of dangerous files, like viruses, spyware, and "illegal" pornography. In reality, no scans were ever conducted.
Kristy Ross, an Innovative Vice President, hired counsel and defended against the suit. The other defendants either settled or had default judgments entered against them.
The trial court concluded that Ross had actual knowledge of the deceptive marketing scheme, or was "at the very least recklessly indifferent or intentionally avoided the truth" about the scheme. It entered judgment against her in the amount of $163,167,539.95, and it enjoined her from engaging in similar deceptive marketing practices.
Ross argued the Federal Trade Commission Act - which authorizes the Commission to sue in federal district court so that "in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction" - does not permit the Commission to recover a monetary award. The statute says “injunction” and that should be the only remedy.
But the appellate court found that what the statute says and what the statute means, may be different matters. According to Supreme Court precedent, when Congress authorizes a district court to exercise its equitable jurisdiction, that jurisdiction includes the full "power to decide all relevant matters in dispute and to award complete relief[.]" In the appellate court's view, by authorizing the district court to issue a permanent injunction, Congress implicitly authorized the district court to exercise the full measure of its equitable jurisdiction. Which means the court had sufficient statutory power to award ''complete relief," including "monetary consumer redress."
Ross no doubt wishes the court would have been a little more literal, given the sheer size of the award. But in this case, the implication prevailed.